Cognitive Dissonance
NOUN: the state of having inconsistent thoughts, beliefs, or attitudes, especially as relating to behavioral decisions and attitude change.
I never got past Pyschology 101 at the University of Minnesota. In fact, I never got past many introductory college classes, but my college experience needs to be a subject of another blog post.
I run into the psychological state of cognitive dissonance on a daily basis when I approach individual investors. The trigger is my questions about current investment management strategies regarding their company 401(k) retirement plan account.
When responding to my questions, I can hear in their voice the mental and emotional discomfort. You can tell by the tone of voice that responses to my questions (current beliefs) don’t match current or past behaviors.
To a person, these individual investors are hugely inconsistent. Their beliefs and fears are not at all consistent with their behaviors and actions.
All company 401(k) retirement plan participants are thrilled with their year-end 2020 all-time high company 401(k) retirement plan account balances. As hard a year as 2020 was on many levels, thank heavens their retirement savings survived, and even thrived, last year.
Here is the problem. Many of the individual company 401(k) retirement plan participants I talk to have a very hard time accepting the investment management truths and risk levels now evident in the current economic and stock market environments.
These individual investors have a hard time processing the opposite and conflicting information included in my questions. My questions show their clear disconnect from the j401(k) statement numbers they see versus the reality and their existing beliefs and behaviors.
My sequence of questions comes in two parts. First, I ask a very logical, experienced, and well-meaning question.
“Are you concerned about the preservation of your current company 401(k) retirement plan account balance due to the political, economic, and stock market conditions?”
Almost without fail, the answer is “yes.”
The next question is where the cognitive dissonance raises its ugly head.
“What investment management strategy do you have in place now in order to preserve the last several years of your stock market gains in the early stages of the next great stock market decline?”
The responses are all too common. The most popular is, “I don’t have time.” The second most popular response is, “I don’t know what to do,” closely followed by, “Nothing.”
I really do believe these individual investors have good intentions. They want to follow through on their 4019(k) account management fears with prudent investment management behaviors that are consistent with those fears.
Do you have the same fears about your current company 401(k) retirement plan account principal? If so, what if anything are you going to do about it?”
Ric Lager
Lager & Company, Inc.
